Why Noman Group suspends plans for 3 new RMG factories
Noman Group, one of the country's leading exporters with around 80,000 employees in its 32 factories, recently suspended its decision to invest in three new ready-made garment factories.
Nurul Islam, chairman of the group, said the investment plans have been scrapped due to escalating fuel prices, the reverberations following the Russia-Ukraine conflict, as well as some domestic and international issues.
In an interview with The Business Standard at his Gulshan residence, the entrepreneur said, "The target was to set up three new garment factories where 15,000 workers could be employed. But now we have decided not to carry on with the plan."
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"Earlier, all the companies in our group had to pay gas bills worth Tk35 crore-Tk40 crore per month. Now after the price hike, the cost has jumped to Tk120 crore. The cost has increased by Tk80 crore per month," he said.
The entrepreneur further said at the same time, gas prices have not increased in Bangladesh's competing countries. "These countries have their own cotton and dyeing chemicals. They are ahead of us in lead time for exporting to Europe. Due to these reasons, we are falling behind in the competition."
He explained that exporters are currently facing a decline in demand within the global market due to the Russia-Ukraine war. ' 'Our production cost per kilogram of yarn has risen by $0.40. However, the buyers are not willing to pay this additional cost.
The reason behind the buyers' reluctance lies in the fact that they can source these products more affordably from countries like China, India, Pakistan and Indonesia. Consequently, we find ourselves unable to raise our prices,'' he said.
Nurul Islam said, "In the past, we used to achieve an average profit of 3%, but now we're facing losses ranging from 3% to 5%. The primary reasons behind this downturn are the ongoing war and the significant uptick in local gas prices."
In the past, our production operated at full capacity, a testament to our efficiency. However, currently, the factories are operating at an average capacity of around 65%, reflecting the challenging circumstances we're grappling with, he said.
He mentioned the increase in dollar prices in imports, citing an example of a loss of Tk90 crore in imports in a factory.
He said, "Once we scheduled the Nice Spinning factory's operation, we opened an LC for imports. The terms were simple: upon the goods arrival at the port, my bank should pay within five business days. However, due to a dollar shortage, the local bank (Islami Bank Bangladesh Limited) delayed payment for nine months. This delay caused the bank to pay over Tk100 per dollar, significantly higher than the initial Tk84 per dollar, resulting in a staggering loss of Tk90 crore."
"Due to the ongoing dollar crisis, I'm struggling to open LCs promptly. Our factories require 10,000 tonnes of cotton monthly, but we're only able to secure 5,000 tonnes due to LC issues. We need cotton worth Tk2.5 crore monthly. Despite the official import rate set at Tk109 per dollar, banks are demanding Tk114 per dollar," he said.
A year and a half ago, Noman Group's major subsidiaries, Zaber & Zubair Fabrics Limited and Noman Terry Towel Mills Limited, both key players in South Asia's home textiles industry, were collectively exporting over $400 million annually. However, that figure has now dwindled to $300 million.
The company is currently grappling with challenges in repaying bank loans, although no overdue or default situation has occurred yet. Meeting payment obligations to the banks on time has become increasingly difficult.
Nurul Islam said a significant portion of the country's export orders is being redirected to India and Pakistan. Over the past eighteen months, India and Pakistan have established several large-scale home textiles factories.
He revealed that multiple factories within the home textile sector have been compelled to shut down. Of the 19 factories dedicated to producing bedsheet products, only two remain operational.
The seasoned entrepreneur said the situation is unlikely to witness any significant improvements until at least August of next year.
Ways to overcome
Nurul Islam emphasised the necessity of reducing gas prices to overcome the current situation.
"Initially, when the imported fuel (LNG) price surged to $63 per MMBTU, the government elevated gas prices from Tk16 to Tk30. However, with the current fuel cost plummeting to $12 per MMBTU, it is imperative to restore gas prices to their original levels," he said.
He said that government-backed policy support would encourage investment. It is crucial to maintain energy policy support for a minimum of five years.
Besides, he advocated for a restoration of the export source tax to its previous rate of 0.5%, ensuring that taxes are not deducted from incentive funds, and urged an increase in the incentive rate for the home textile sector.
The continuation of the low-interest loan facility under the Export Development Fund (EDF) is also essential, according to him.
